Rumblings in SkyTeam; Alitalia leaving JV partnership

After five years of partnership Alitalia announced its intentions to bail on its joint venture operations with SkyTeam partners Air France–KLMand Delta. The announcement came this week as part of the company’s restructuring plans as it aims to see profits again, something which has not happened in a long time. The joint venture allows the four three carriers to coordinate on schedules and pricing and to share profits and losses on the operations; Alitalia’s CEO indicated that the arrangement is “no longer beneficial” to the carrier in explaining the change. This is one of the most substantial changes to come since Etihad took a 49% equity stake in the struggling Italian carrier.

The announcement did not mention a change in Alitalia’s membership in SkyTeam and it is unlikely that such would come in the immediate future. The marketing alliance still provides great opportunity for passenger flow and a revenue bump, even without the JV. Plus, the Etihad Alliance, of which Alitalia is also a member by virtue of the minority ownership stake, has explicitly stated that it is comfortable with its members participating in the “Big 3” alliances.

It is also unclear just how significant the change will be for Delta and Air France-KLM; the latter two are, by far, the larger players in the JV arrangement. When Alitalia joined the immunized group in 2010 it added only 20 trans-Atlantic flights to the more than 200 daily operations the others were already flying. Yes, it offers access to, and feed from, a number of smaller airports in Italy but that traffic volume should be relatively small compared to the connections offered by the other three airlines.

The deal covers the European JV amongst the three carriers and Alitalia is, by far, the smallest player in the space. It will still change feed & passenger flows to some smaller airports in Italy for AF/KL but the bigger changes are likely for Alitalia customers rather than the others.

The timing of the announcement is somewhat ironic. Just a few days ago European regulators concluded an investigation into the operations of the JV group in which it was decided that certain landing slots would be ceded to competitors to help ensure that certain routes, including Rome-New York City, are not dominated by the group. With Alitalia theoretically leaving in 2 years those changes might not have been necessary.

CAPA suggests that the JVs may not be quite as profitable for the airlines as desired, a claim I have a bit of trouble believing. Much of the “maturity” in the market cited as a reason the JVs are less successful came specifically from the coordination of operations and reduction of capacity which the JVs were responsible for. In that context it perhaps makes more sense to say that the JVs are mature, not that the markets have outgrown cooperation.

And, of course, Alitalia remains “open to further discussions” which just might see it remain in the JV, assuming the terms shift a bit. I don’t see a ton of bargaining power in Alitalia’s position, but maybe it can pull something creative off.

Yeah…that’s correct. My initial read of the news sources was wrong; I’ve since updated the post. But I think the conclusions are still the same: Nothing is really going to change in SkyTeam and AZ will do what it can to try to become profitable. It might even be successful.